Quality and Inclusion of Producers in Value Chains: A Theoretical Note

This paper develops a firmal theory of the endogenous process of the introduction of high quality products in developing countries. Initial differences in income and capital and transaction costs are shown to affect the emergence of and the size of the high quality economy. Initial differences in the production structure and the nature of transaction costs 'C as well as the possibility of contracting between producers and processors 'C are shown to detfirmine which producers are included in the high quality economy, and which not.